Acme Closings To Be Precursor Of More SVU Activity
I’ve got to give new Supervalu CEO Wayne Sales credit. In five short weeks on the job, he’s already made more decisive moves that his predecessor, Craig Herkert made in three years at the helm.
Shaking up his staff was a necessary move. No offense to Janel Haugarth, but her former role as EVP-supply chain was not a great fit for her or the company. Janel’s a great team player (which will help her in her new role as EVP-business transformation), who knows the wholesale business inside out, but really wasn’t qualified to be Supervalu’s primary merchandising and procurement executive. If you don’t believe me, ask Supervalu’s key suppliers and brokers and they’ll reaffirm that the merchandising position at Supervalu needed upgrading. However, to be fair, improving SVU’s merchandising and vendor relations would have been difficult for anyone given the company’s financial results over the past several years. New EVP-merchandising Tim Lowe, whose most recent job at Supervalu was as president of Shoppers Food & Pharmacy, will also face a sharp learning curve, but his diverse retail experience should be a plus. In fact, working for anybody other than Herkert should be regarded as a positive.
And as for Kevin Holt being named president of Supervalu’s entire retail operation, I think that also sends a strong signal of empowerment. Of course, in my book, virtually any choice to head retail ops would be an improvement over the recently departed Pete Van Helden, who despite his gregarious and outgoing manner (as viewed by the associates), didn’t seem to accomplish much in his tenure at Supervalu. Holt has a huge task in front of him, but his field experience with a winning organization (Meijer, Inc.) and a losing one (Sears/Kmart) should have at least left him adequately battle tested.
As for the recent round of store closings (the first under Sales’ watch), this move should be regarded as basic housekeeping. There’ll be more painful news to come over the next year.
Sales really has no choice. Herkert and his predecessor Jeff Noddle damaged the company so severely that closing stores and selling divisions (if not all of Supervalu) is the former tire salesman’s best going forward strategy.
And while Save-A-Lot and Jewel appear to be the most saleable assets (along with several of the original Supervalu regional chains), the rest of the retailer/wholesaler’s other properties are going to be more difficult to sell.
Certainly Acme fits into that latter category. When the Malvern, PA based unit closes its stores in Falls Township, PA, Glassboro, NJ, Sharon Hill, PA and Stevensville, MD, it will shutter four units that are too small and that have underperformed for years. But what about the remainder of Acme’s 113 stores? How many others are too small or too antiquated? How many units have been affected in recent years by more progressive and sharper priced competitors? How many of those 113 stores are adversely impacted by indifferent or declining associate morale?
The answer is well over 50 percent. And when you toss in very costly legacy labor contracts and major underfundings with several of its pension plans (a huge potential liability problem for virtually all organized retailers), Acme, like Shaw’s in New England and Albertsons in Southern California, seems like a candidate more likely to be auctioned off in small pieces rather than to be sold as one entire entity.
And, now that the Supervalu prospectus is on the street, it could be possible for a deal to be done as early as the end of October. Even though I believe the best bet is that the company will be sold piecemeal, I keep hearing that private equity is all over this opportunity. (Could Cerberus – a logical fit since they acquired the Florida and Texas divisions of Albertsons in 2006 – be one of those financial players?) In that scenario, a PE firm would look to buy the entire Supervalu organization, spin off certain assets, possibly keeping control of a few profitable entities while retaining Supervalu’s valuable real estate portolio.
Stay tuned, things sound like they’re moving rapidly.
Hodge To Retire From Delhaize America; New CEO Roland Smith Faces Big Task
I don’t think too many were shocked to hear that Delhaize America chief executive Ron Hodge will be stepping down from his post on October 15. Hodge has spent 33 years with the company (or its predecessors) and, at age 64, the time seemed right to begin to enjoy his retirement.
Parent company The Delhaize Group named Roland Smith, former president and CEO of the Wendy’s/Arby’s group, to replace Hodge, and his task will be mighty challenging. From his background as a corporate leader, Smith, 57, certainly has the pedigree. In addition to his stint at Wendy’s and Arby’s, Smith has been a CEO of Triarc Cos., American Golf Corp. and AMF Bowling World. He is also a West Point graduate who spent seven years in the U.S. Army.
While Smith has spent a large portion of his career in the foodservice industry, this will be his first foray into the supermarket business (he did serve on the CPG side early in his career with Pepsi, Schering-Plough and P&G). And he will immediately inherit a most difficult situation that centers on Delhaize America’s largest property: Food Lion.
The good news: recent numbers indicate that at the approximately 435 Food Lion stores (representing about 40 percent of the Food Lion fleet) that have been “rebranded” from a price and service perspective, comp store sales increased about 3.3 percent. And after its second quarter ended on June 30, another 269 units were “rebranded” in the Charlotte-Greensboro, NC market, close to Food Lion’s headquarters in Salisbury. The bad news: Food Lion is still among the most vulnerable of all retailers to the flurry of new competition that’s entered its core markets (particularly Wal-Mart SuperCenter conversions, extreme value retailers and dollar stores) and now other pieces of parent organization Delhaize America are also being pressured.
While the “rebranding” of its core Food Lion banner should continue to modestly increase sales, the bigger question remains whether the chain is good enough to regain the luster of the once-powerful brand of the 1980s and 90s?
At this point, that the largest unit of Delhaize America has improved about 62 percent of its stores with markets such as Baltimore-Washington-Eastern Shore scheduled for “rebranding” early next year. So, again, will it be enough to create an image, other than convenience, that Food Lion is a destination shop for consumers?
A three percent comp sales gain is solid (comp store revenue decreased 6.7 percent in those Food Lion stores that have not been “rebranded”), but the once-discount chain was in such a rut that comparable store revenue has been lagging for the past three years. Once Food Lion’s “rebranded” stores cycle for a full year, we’ll be able to better judge if those investments are paying off on the top and bottom lines.
For now, on an overall basis, Delhaize America continues to produce some of the worst numbers in the supermarket sector. For the period ended June 30, overall U.S. sales decreased 3.1 percent to $4.7 billion and operating profits declined 24.5 percent to $157 million and comp store sales at its U.S. banners (Food Lion, Hannaford, Sweetbay, Harvey’s, Reid’s) dipped 0.6 percent.
Certainly, the investments made to improve Food Lion have adversely impacted Delhaize America’s earnings. But the big Brussels based merchant is also fighting additional issues on other fronts. Its best banner, Hannaford, is fighting tough price competition, especially from Market Basket (Demoulas) and ShopRite, which have opened four new stores in Hannaford’s backyard (in the Albany, NY and Manchester, NH markets).
Its much touted Bottom Dollar discount banner is still not profitable and is, in our opinion, struggling with volume at many of its new stores in the Delaware Valley-Lehigh Valley and Pittsburgh-Youngstown markets.
In what is likely to be his last conference call, conducted after the earnings release on August 22, Hodge told analysts that the “rebranding” efforts at Food Lion should show positive overall sales results for the banner in about six months.
But Hodge, and soon Smith, will face other challenges, too. At Food Lion, many of its customers are in the demographic that remains the most challenged economically. Moreover, from a market analysis view, there isn’t a more competitive segment in the entire retail business with Wal-Mart, Aldi, Save-A-Lot, Family Dollar, Dollar General and Dollar Tree, all competing for the same customer.
And as Hodge inferred, the competition in the New England and Upstate New York markets is getting even more tenacious, and will continue to impact retailers with strong market shares such as Hannaford (and also Stop & Shop and Price Chopper).
I’ve visited many of the “rebranded” Food Lions units, and the company has done a nice job of making the shopping experience more pleasant (better mix, improved private label and cleaner perception) while lowering prices, too. Still, perishables remain below (supermarket) industry standards and the bulk of the fleet is comprised of smallish stores (under 35,000 square feet).
I recognize this project still needs more time to “bloom” (ouch), but my current impression of the “rebranding” initiative reminds me of the title of a song that the great Peggy Lee made famous: “Is That All There Is?”
Ron Hodge has had a wonderful career in this business, beginning with Hannaford Bros in Maine. We wish him the best in all his future endeavors. As for Roland Smith, it will be interesting to see how an industry outsider with strong leadership credentials pilots a company that’s enduring the most tumultuous period in its history that dates back to 1957.
At Ahold, The Numbers Indicate A Different Story
About 110 miles northeast of Brussels, Amsterdam based Ahold released its second quarter earnings and sales for the period ended July 15. Helped by its large U.S. platform (which controls about 62 percent of Ahold’s total sales), the retailer’s numbers were dramatically different from Delhaize’s.
The Dutch based retailer saw increases in overall sales, ID revenue and earnings.
And while improvements can still be made in communication and execution between vendors and category managers and also between its corporate infrastructure based primarily in Carlisle, PA and its four operating divisions, Ahold is clearly in a position to attack, not reposition.
At its 765 U.S. stores, the company’s profit increased 10.6 percent to $261 million and its operating margin was a healthy 4.3 percent (up from 4.1 percent in the corresponding quarter last year). Overall sales were $6 billion, a 3.4 percent gain over last year’s performance. Identical store revenue grew 2.2 percent (ex-gas).
While Ahold CEO Dick Boer was pleased with his company’s second quarter performance, crediting strong margins gained through “stringent cost control,” he, like many other grocery leaders, expressed caution about market conditions for the remainder of 2012.
“We expect market conditions to remain difficult and are cautious about the potential impact of rising commodity costs, particularly in the U.S…we are confident that we are well on track to deliver on our strategy and we will continue to invest in growth,” the Dutch executive stated.
In fact, Boer added that he was pleased with the addition and conversion of the recently acquired (by Giant/Carlisle) 15 former Genuardi’s units (final cost: $113 million). During fiscal 2012, in addition to the Genuardi’s purchase, Ahold has spent about $835 million to expand its organization. It has acquired three former Fresh & Green stores in the Baltimore area (Perry Hall opened on August 24) and has also acquired a Dutch retail competitor and a Netherlands based Internet firm.
But with about $3 billion in cash reserves, we expect Ahold to continue to look for more opportunities to grow its retail empire, particularly in the U.S. where acquisition opportunities should be readily available in the next two years.
Specifically, while I don’t expect Delhaize to be a player in the sale of certain Supervalu assets, I fully expect Ahold to pursue such potential opportunities as well as taking a hard look at A&P’s store base, should a sell-off present itself.
‘Round The Trade
Kings Food Markets last month announced that it has acquired the Old Greenwich location of Porricelli’s Market (Porricelli’s other store in Trumbull, CT is not part of the deal). Porricelli’s was founded in 1949 and has faced challenging high end competition in recent years, from retailers including Stew Leonard’s, Whole Foods, and, more recently Fairway Market. “At Kings, we share our love of food with our customers, and we’re excited to have the opportunity to introduce this passion to a new community to Old Greenwich” said Judy Spires, CEO of Kings. “Our goal is for customers to discover those moments in our stores where inspiration strikes, whether it’s finally finding a rare ingredient, creating a delicious menu using delicious menus from Kings’ chefs, or knowing they can rely on pairing suggestions and preparation tips from our associates. We know that Porricelli’s Market has been a pillar of the Old Greenwich community for 60 years, and we are committed to providing the same level of personal, attentive service that is truly the cornerstone of our brand experience.”…Stop & Shop will expand its gas rewards program to all of its New Jersey stores. The unit of Ahold USA initially launched its gas discount program (with partner Shell Oil) at its Stop & Shop units in New England and New York in 2010 (and also at its Baltimore-Washington area Giant/Landover stores; it has also long enjoyed great success with its own propriety gas program at its Giant/Carlisle unit). However, because fuel rewards programs were prohibited in the Garden State (is there a state in the union with more antiquated and whacky laws than New Jersey?) Stop & Shop was not able to expand its program. A new law passed earlier this year changed the rules and you can expect other retailers to jump on the gas rewards bandwagon shortly…with Fairway Market considering an IPO, it would have to look no further than Fresh Market to witness a real success story. The Greensboro, NC upscale merchant (which went public in 2010), which operates three stores in Pennsylvania and two in New Jersey posted tremendous numbers in its second quarter ended July 29. Net income jumped 26.9 percent and total sales increased 20.6 percent. Comp revenue rose a very healthy 8 percent and two of the most challenging metrics for all food retailers – transactions and transaction size – increased 5.3 percent and 2.7 percent respectively. The Fresh Market opened 11 stores during the first half of fiscal 2012 and expects to cut the ribbon on 3-5 more units before the end of the year, including its first store in California (Roseville). Next year another 14-16 new units are slated to debut. “A lot of retailers get excited about what they are doing and expand pretty fast and then have to close some stores,” said Craig Carlock, The Fresh Market’s CEO. “We want to be disciplined and thoughtful. Any retailer could open more stores, and so could we, but our plan is to hit (an annual growth rate of) 15 percent.” And other than Whole Foods, there has been no other food retailer as hot as The Fresh Market since the beginning of 2012…another IPO on the way is Safeway’s Blackhawk gift card division, which will be spun off in early 2013. The move makes a lot of sense, given the unparalleled success of Blackhawk and the recent struggles of Safeway’s grocery business. Analysts believe that the offering will be well received, but several Wall Streeters wondered if, without Blackhawk, Safeway’s weaknesses would be further exposed. Over the past several months, Safeway and its longtime CEO Steve Burd have been hammered over flat sales and an unwillingness to deal with some the chain’s underfunded pension plans. With more competition also threatening Safeway’s long protected West Coast business, the shedding of Blackhawk will certainly put more pressure on the chain’s core supermarket business…big news from “Snackland USA” in Central PA. Hanover based Utz Quality Foods has agreed to acquire certain assets of Reading based The Bachman Company. Utz will purchase the Bachman brands (which also include Jax and Thin ‘n Right and Chipitos), its distribution, its intellectual property and its manufacturing facility in Ephrata, PA. Bachman will retain ownership of its Reading manufacturing facility and will continue to produce salted snack items for Utz and other companies. The 125-year old privately-held firm will change its name to Savor Street Foods. The deal is expected to close later this month. Down the street in Hanover, Snyder’s-Lance (which also operates from Charlotte, NC) has agreed to acquire Snack Factory for $340 million in an all cash deal. Princeton, NJ based Snack Factory, makers of Pretzel Crisps, was founded in 2004 by Sara and Warren Wilson (who also founded New York Bagel Chips). Snyder’s-Lance said it should consummate the purchase early in its fourth quarter…earlier this month Sheetz announced that will build a new $32.8 million distribution and food production center in Burlington, NC. The new 245,000 square foot center is a key element in the c-store retailer’s rapid expansion plan for new convenience restaurants, particularly in the Virginia and North Carolina markets. The depot will look much like Sheetz’s facility in Claysburg, PA (Blair County). The Burlington center, which is slated to open in December 2014, will produce sandwiches, salads and other convenience foods. It will create 254 new jobs. Sheetz, based in Altoona, PA, currently operates 429 c-stores, with 46 of those units located in the Tar Heel State and an additional 59 units in Virginia…also based in Virginia is Relay Foods (www.relayfoods.com), which recently announced that it has expanded its online home delivery service – featuring 11,000 grocery items – to the Philadelphia, Baltimore, and Washington metro areas. The Charlottesville based firm, which also currently services customers in the Richmond area, said it recently raised $1.2 billion in new capital that helped fund this expansion. The company will also establish convenient pickup locations in each market and upgrade its website, which they believe will accelerate the “personalization of the shopping experience beginning with a customer’s initial visit to the site.” According to Zach Buckner, CEO, “Relay Foods is designed to efficiently serve a range of customers – from professionals and parents managing households, to people who care deeply about access to farm-to-table produce and the finest artisan foods, and of course, like to avoid the crowds and hassles of today’s grocery retail environment. We are proud now to offer even more products from the region’s most socially and environmentally responsible farms and artisan food vendors.”…Baltimore based McCormick & Company has opened its first retail store called McCormick World of Flavors. The new 3,800 square foot entity is located on the first floor of the Light Street Pavilion at Harborplace at Baltimore’s Inner Harbor, very close to the original McCormick plant and headquarters that stood at 414 Light Street. “The opening of McCormick World of Flavors is an exciting new way to connect with millions of people who love food and flavor,” said Alan Wilson, McCormick chairman, president and CEO. “Visitors will have the opportunity to interact with many of our brands from around the world as we showcase how we bring flavor to their lives each and every day. Having a retail destination in the Baltimore Inner Harbor brings us back to our roots, offers visitors a chance to have fun, learn and engage.”…Redner’s announced just before presstime that it has signed a lease to build another new store in Dover, DE. This unit will be 48,500 square feet in size and will be located in the Greentree Shopping Center. It is tentatively slated to open next summer and joins other First State Redner’s Warehouse Markets in North Dover, Milford (opened last month) and Camden (set to open later this year). And on September 12, Redner’s cut the ribbon on its newest store in Hegins, PA (its third unit in Schuylkill C
ounty and 42nd overall). The Hegins store is 40,000 square feet in size and features a fuel station…A&P has reopened its Pathmark store on Old Bridge, NJ, a week after a tragic shooting in which a store employee shot and killed two co-workers before killing himself. The incident occurred before the store opened the morning of August 31 and police are continuing their investigation. This is truly a sad, sad story…also sad is the passing of a couple of legends from the entertainment and sports world. Phyllis Diller, 95, left us last month. And while she was not everybody’s cup of tea, Phyllis Diller was truly a pioneer. She didn’t get into comedy until she was nearly 40 (she was a successful advertising and radio writer before that). While she may not have been the first female stand-up comedienne, she was the first to become a star. She influenced other female comics such as Joan Rivers, Ellen DeGeneres and Chelsea Handler and she remained active until 2009. Also departing mortality was Steve “Wham Bam” Van Buren, the Hall of Fame running back who led the Philadelphia Iggles to NFL championships in 1948 and 1949. The former LSU star was the Eagles’ first round pick in 1944 and finished an eight-year career by rushing for 5,860 yards and 77 touchdowns. He was named All-Pro five times and was selected to the NFL’s 75th anniversary team in 1994. He was also the first Eagles player inducted into the Pro Football Hall of Fame. Following his retirement in 1952, Van Buren resided in Lancaster, PA. He was 91… a final word about A&P’s decision to unload its Food Emporium division. Way back when (in the 1980s), the Food Emporium model was unique and very well run. But those days have been ancient history for quite some time as the Tea Company operated its Manhattan stores with its typical reverse Midas touch. It didn’t surprise many that Food Emporium would be chairman Ron Burkle’s first “dumping,” because, despite its poor operations coupled with superior and newer competition from the likes of Whole Foods, Fairway and Trader Joe’s, Food Emporium still should attract many prospective buyers because of its real estate value. Where else can you find 16 stores in the 20,000 square foot range in the country’s largest
and best demographic area? This reporter likes Trader Joe’s (owned by the wealthy Albrecht family) as the early favorite, although this deal could also set up well for a financial/private equity player. And, once Food Emporium is moved, I still expect A&P to start selling off other assets, particularly those stores in the Delaware Valley market.